Board pay: Unchecked and out of hand

(Fortune Magazine) -- Here's a strong opinion right upfront: High pay for outside directors of corporations guts the whole idea of these representatives of the shareholders making
independent judgments. How does a board member challenge a CEO when the director is being paid oversize amounts likely to be important to his or her lifestyle?

Today, with executive pay making headlines generally, it's worth turning the spotlight on corporate directors: For them, what is "high pay," and who gets it? Specifics on this point have
been sketchy, so Fortune did some research, starting with executive recruiter Spencer Stuart's 2008 data for 491 large and important companies. Those 491 paid their nonemployee directors
an average of $213,000 in 2008. We next searched the proxy statements of the 23 companies in the survey whose average exceeded the nosebleed level of $400,000.

What we extracted is the information below, which spotlights 10 companies that pay their directors spectacularly. XTO Energy (XTO, Fortune 500), a Fort Worth oil and gas exploration company that Exxon Mobil
(XOM, Fortune 500) recently announced it would buy, gets the prize. Or rather director
Jack Randall, 60, got it, and it was $1.56 million in 2008 compensation -- more than seven times the average. Randall is not considered an "independent" director, because he's with
securities firm Jefferies Group, which does business with XTO. Talking to Fortune, he said, "I like to think I act with independence." He added that he had "no indication" he doesn't.

Of the 10 companies, Chesapeake Energy (a competitor of XTO's) exhibits the most bizarre set of circumstances. In the first place, the high earner among Chesapeake's eight nonemployee
directors in 2008 -- all of them classified as "independent" -- was Breene Kerr, a cousin of CEO Aubrey Kerr McClendon. Kerr (who, having turned 80, left the board this year) received
$784,687. Second, all eight of the company's outside directors were paid richly in 2008, averaging $670,000. Third, they drew notorious attention because of their benevolent treatment of
a reeling McClendon.

Bad judgment had done him in. An indefatigable bull on Chesapeake's (CHK, Fortune 500) stock through mid-2008, McClendon, now 50, bought heavily on margin,
amassing a stake that at Chesapeake's July high of $72 a share exceeded $2 billion. In December the stock plunged to $10 as the credit crisis flared and petroleum prices plummeted. Two
months earlier, margin calls had forced McClendon to sell almost all of his position, at prices between $13.60 and $24 a share. The sales clobbered his net worth.

Racing to the rescue like corporate first-responders, the Chesapeake board awarded McClendon a $75 million special bonus for 2008. Other compensation raised his total to $100 million, one
of the highest figures in the land. Chesapeake's compensation committee issued a "rationale" for the bonus that stressed the board's wish to keep McClendon as CEO.

Asked by Fortune why Chesapeake pays its directors so much, McClendon said, "We have a very large and complex company, and we value our directors' time."

Director's Cut

These companies paid their board members some of the largest sums in 2008.